George Galloway averted bankruptcy yesterday when the Daily Telegraph comprehensively lost its appeal against a libel judgment in his favour and an award of £150,000 damages over allegations that he took money from Saddam Hussein.

Had the newspaper won in the court of appeal, the Respect MP for Bethnal Green and Bow would have faced a legal bill of around £2m, a sum he has said would have forced him into bankruptcy.

Mr Galloway still faces two possible inquiries over his dealings with the former Iraqi dictator. The Serious Fraud Office is considering whether to launch a full investigation into his alleged links to the UN oil-for-food scandal. And the parliamentary commissioner for standards, Sir Philip Mawer, said yesterday that he was taking legal advice on whether he could proceed with inquiries into whether the MP broke rules by not declaring benefits received from the Iraqi regime.

Three appeal court judges - the Master of the Rolls, Sir Anthony Clarke, and Lords Justices Chadwick and Laws - unanimously dismissed the Telegraph's argument that its allegations in April 2003 were covered by qualified privilege.

That defence, spelled out by Lord Nicholls in a House of Lords case brought against Times Newspapers by the former Irish taoiseach, Albert Reynolds, allows newspapers to escape liability for publishing defamatory statements, even if untrue, if they meet certain conditions.

Sir Anthony said that the Telegraph's reports on the contents of documents found by its correspondent in the Iraqi foreign ministry after the fall of Baghdad were not just neutral reportage.

Mr Justice Eady, the trial judge, had been "particularly struck" by a suggestion that Mr Galloway was guilty of "treason", references to his being "in Saddam's pay", having received "at least £375,000 a year" and being "Saddam's little helper", and the words, "it doesn't get much worse than this", said Sir Anthony.

Mr Justice Eady, who heard the case without a jury, held that the allegations in the newspaper were seriously defamatory, conveying the meaning that Mr Galloway had diverted cash from the aid programme. Sir Anthony said that in his judgment last December, Mr Justice Eady "was plainly right to conclude that the newspaper was not neutral but both embraced the allegations with relish and fervour and went on to embellish them".

The paper asked Mr Galloway for his side of the story, but failed to put to him the central allegation that he had taken money "to line his own pockets", not just for political campaigning or for his Mariam charity appeal, Sir Anthony added. Given the seriousness of that allegation, "we can see no basis upon which this court could interfere with the amount of damages", the judges said.

After his eviction from the Big Brother house last night, Mr Galloway said: "I was delighted to learn that the Daily Telegraph had lost the latest of their appeals ... Maybe now they would have to pay me the very large sum in damages that they have been ordered to pay ... There have been all sorts of allegations ... all of them are false, and if anybody wants to talk to me about them, I'd be happy to do so. Nobody gave me any money for my work on Iraq, except the newspapers who falsely claimed that someone else had."

Mr Galloway, who formerly represented Glasgow Kelvin for Labour, has always denied ever seeking or receiving money from Saddam Hussein. His Algarve house, pictured in the Telegraph, was said in court yesterday to be "fully mortgaged", and his home in Streatham, south London, worth £450,000 "also mortgaged".

The judges refused the paper permission to appeal to the House of Lords, but the Telegraph is considering petitioning the law lords direct. Payment of damages and costs was stayed for now.

Neil Darbyshire, its deputy editor, said: "It is particularly disappointing that the court of appeal, like the original trial judge, appears to accept that there is a significant difference between the allegation that Mr Galloway may have obtained money from the Saddam regime for his 'personal gain', and that he may have obtained money from the Saddam regime for 'political campaigning'. To have obtained money from the regime at all, particularly money from the oil-for-food programme, which was intended to alleviate suffering among the most vulnerable of Iraq's population, would have been the real iniquity - though George Galloway has always denied receiving any money."